ASBE No. 27
Active
Extraction of Petroleum and Natural Gas
Extraction of Petroleum and Natural Gas is part of the Chinese Accounting Standards for Business Enterprises (ASBE).
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Conceptual Framework Linkage
A specialised, industry-specific standard
ASBE No. 27 governs the ACCOUNTING for OIL and GAS exploration, DEVELOPMENT, and PRODUCTION activities – a SPECIALISED, industry-SPECIFIC standard ADDRESSING a TOPIC that INTERNATIONAL standards (IFRS 6 in PARTICULAR) leave ONLY PARTIALLY addressed (Section 7).
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Scope – the Full Exploration-to-Production Lifecycle
Exploration, development, and production costs
This Standard applies to COSTS incurred THROUGHOUT the OIL and GAS LIFECYCLE – EXPLORATION (SEARCHING for oil/gas RESERVES), DEVELOPMENT (PREPARING proven RESERVES for PRODUCTION), and PRODUCTION (EXTRACTING the oil/GAS itself).
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Two Permitted Accounting Methods
A genuine policy choice between two established approaches
ASBE No. 27 permits ENTERPRISES to CHOOSE BETWEEN the "SUCCESSFUL EFFORTS" method and the "FULL COST" method – a GENUINE accounting POLICY election, MIRRORING the SAME choice HISTORICALLY available under US GAAP (WHICH ALSO permits BOTH methods), RATHER than PRESCRIBING a SINGLE, mandatory APPROACH.
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The Successful Efforts Method
Capitalise successful wells, expense unsuccessful ones
UNDER the SUCCESSFUL efforts METHOD, exploration COSTS relating to WELLS that SUCCESSFULLY discover COMMERCIALLY viable RESERVES are CAPITALISED, WHILE costs RELATING to UNSUCCESSFUL ("DRY") exploratory WELLS are EXPENSED immediately – a MORE conservative approach LINKING capitalisation DIRECTLY to demonstrated SUCCESS.
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The Full Cost Method
Capitalise all costs within a defined cost centre
UNDER the FULL COST method, ALL exploration and DEVELOPMENT costs WITHIN a DEFINED geographical COST centre are CAPITALISED – REGARDLESS of WHETHER individual WELLS are SUCCESSFUL or NOT – REFLECTING the VIEW that EXPLORATION costs (INCLUDING the cost of UNSUCCESSFUL wells) are a NECESSARY part of the OVERALL cost of FINDING commercially VIABLE reserves WITHIN that COST centre.
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Depletion – the Unit-of-Production Method
Amortising capitalised costs based on reserves extracted
CAPITALISED oil and GAS costs are DEPLETED (AMORTISED) using the UNIT-of-PRODUCTION method – BASED on the PROPORTION of ESTIMATED total PROVEN reserves EXTRACTED during the PERIOD, RATHER than a SIMPLE time-BASED depreciation SCHEDULE – REFLECTING the PATTERN in which the UNDERLYING reserve is ACTUALLY consumed.
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A Notable Contrast – More Comprehensive Than the International Equivalent
Fuller guidance than IFRS provides
INTERNATIONALLY, IFRS 6 (EXPLORATION for and EVALUATION of MINERAL resources) addresses ONLY the NARROW exploration and EVALUATION phase, LEAVING the BROADER accounting for DEVELOPMENT and PRODUCTION-phase oil/GAS activities WITHOUT a SINGLE, comprehensive IFRS standard (ENTITIES typically APPLY general PRINCIPLES from IAS 16 and IAS 38 by ANALOGY). ASBE No. 27, BY CONTRAST, provides a SINGLE, comprehensive standard COVERING the ENTIRE exploration-DEVELOPMENT-production LIFECYCLE – a GENUINELY notable CASE where China'S own domestic STANDARD offers MORE complete, DEDICATED guidance than the EQUIVALENT international FRAMEWORK.
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Worked Example – Depletion Under the Unit-of-Production Method
Amortising capitalised costs based on extraction proportion
Example: A capitalised oil field development cost
A company capitalises RMB 900,000,000 of development costs for an oil field with estimated total proven reserves of 60,000,000 barrels. During the year, 6,000,000 barrels are extracted.
DEPLETION for the year = RMB 900,000,000 × (6,000,000 ÷ 60,000,000) = RMB 90,000,000, recognised as an EXPENSE REFLECTING the PROPORTION of RESERVES extracted DURING the period.
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Worked Example – Expensing a Dry Exploratory Well
The successful efforts method in action
Example: An unsuccessful exploratory well under the successful efforts method
A company, applying the successful efforts method, spends RMB 40,000,000 drilling an exploratory well that fails to discover commercially viable reserves.
The company EXPENSES the FULL RMB 40,000,000 IMMEDIATELY, since the WELL was NOT successful – under the ALTERNATIVE full COST method, this SAME RMB 40,000,000 would INSTEAD be CAPITALISED within the RELEVANT cost CENTRE.
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Disclosure Requirements
What ASBE No. 27 requires
Accounting method elected (successful efforts or full cost)Capitalised exploration and development costs, and depletion recognised during the periodEstimated proven reserve quantities underlying the depletion calculation
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether a well has discovered commercially viable reserves, under the successful efforts method
SIGNIFICANT ESTIMATES
Estimated total proven reserves, underlying the unit-of-production depletion calculation
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Relationship to IFRS 6 and US GAAP
Comparison – ASBE 27 vs IFRS 6 and US GAAP
FeatureASBE 27IFRS 6US GAAP
Scope of coverageFull exploration-to-production lifecycleNARROW – exploration/evaluation phase onlyFull lifecycle – comparable scope to ASBE
Method choiceSuccessful efforts OR full costN/A – limited scopeSuccessful efforts OR full cost – converged with ASBE
A GENUINE case where ASBE aligns MORE closely with US GAAP'S comprehensive TREATMENT than with the NARROWER IFRS 6.
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Statement Mapping
Where every oil and gas event lands
EventStatement(s) affectedNotes
Depletion expenseBS ISBased on the unit-of-production method
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Related Standards
Cross-reference map
StandardConnection
ASBE No. 4Fixed Assets – supplies the general depreciation framework this Standard's depletion mechanics parallel
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Quick-Reference Glossary
Successful efforts method
An accounting method capitalising exploration costs only for wells that discover commercially viable reserves, expensing unsuccessful wells immediately.
Full cost method
An accounting method capitalising all exploration and development costs within a defined cost centre, regardless of individual well success.
Financial statement key (Chinese GAAP / ASBE terminology)
BS Balance Sheet (资产负债表)
IS Income Statement (利润表)
SCOE Statement of Changes in Owners' Equity (所有者权益变动表)
CFS Cash Flow Statement (现金流量表)
History & Development
2006-02
ASBE No. 27 Extraction of Petroleum and Natural Gas issued
Operative for periods beginning on or after 1 February 2007